The spread of the subscription economy

“There’s no reason you should have to buy anything… everything we purchase from transportation, entertainment to groceries will soon come with a monthly plan”, said Zuora’s CEO Tien Tzuo last year.

Zuora is one of many cloud-based companies that have targeted and monetized the subscription economy as a product in itself, helping companies transition their offerings into the full-length subscription model. Stanford Business reported that the subscription market has been growing at a stellar rate of 100% a year, generating billions of dollars in value to these market players.

Many of us have shifted to an experience-driven buying pattern, all but confirming that Everything-as-a-Service (EaaS, or Xaas) is well on its way to becoming the de-facto marketing strategy – no matter the industry or sector. It seems hard to believe that we own fewer things than we used to. We have been possession junkies for generations, but we have seen an ageless transformation in purchasing behavior, as consumers shift their preferences from buying products and services to buying experiences.

Consumers of all ages are hungry for subscription box services. Think of planned diets, or maybe something fun and educational to do with your kids on a rainy day. “It seems there is very little we cannot have delivered to our doors in a surprise-like box, as the industry has ballooned well beyond clothing and razors to delivering everything from dog treats to toys, plants, and even crystals, directly to consumers,” said Forbes in a related piece. According to a Fast Company feature, there were 3,500 subscription box services as of October of last year, an increase of 40% from the year before.

Recurring revenue-based business models are not novel, nor are they fresh-thinking, to be honest. This marketing strategy has indeed exploded in recent years because traditional barriers to entry are vanishing due to the proliferation of cloud-enabled platforms, where the initial capital investments are nearly absent, and new and easy software program languages make disrupting somewhat easy and fun. The subscription economy checkmated us all into making quicker decisions, taking advantage of the buy now mentality without any strings attached.

 

Automotive – an easy target for disruptors

The opportunity consumers have nowadays to try a service without having to commit to a long-term contract has inspired many companies to explore new digital-first subscription model services. We see this right here in a very pronounced way in the automotive and fleet management industries too. With the ever-growing need to reshape how people get around in densely populated cities, people mobility solutions have taken off. Guess what – that also came in a form called Mobility-as-a-Service (MaaS) because that’s how people prefer to buy and exchange services now, on a utility model.

At its core, MaaS relies on digital platforms that can seamlessly integrate end-to-end trip planning, booking, ticketing, and mobile payment services across all modes of transportation, public or private. Such flexibility marks the expectation for the way services will be delivered in the future. And all of that, on a pay-as-you-go plate.

My experience in automotive and fleet tells me that our industry is about to forever change because of these consumer behavioral shifts. Selling, distributing, running and assigning assets and vehicles, and caring for them will be revolutionized in the next few years because of the advent of subscription services and the technology ubiquity that follows it.

An incredible example of this disruptive digital integration hails from Finland. Helsinki’s famous MaaS app, Whim, allows commuters to plan, subscribe, and pay for trips across multiple transportation modes through a single front-end experience. The app launched a couple of years ago, has been victorious in nudging people away from driving their personal vehicles. The volume is increasing with 60 thousand users per month and more than 1.8 million trips as of last October.

Whim’s success stems from a close partnership between government agencies and the private sector. The service is a result of pure design thinking, creating driver innovation through scalable experimentation. By putting city dwellers at the center of the design, and building a flexible digital engagement platform, where data and analytics can thrive, Helsinki has become an example of what can be done for mobility. Uber and Lyft, and many other contenders, like Waymo and Zoox, have shown us the consumer, that we have options: you can buy, or you can rent services for the time you need it for.

 

What’s your future value?

Self-driving cars are coming around the corner (literally), and with them, zero-emissions vehicles which will carry with them a whole new set of challenges. The consequence of all these developments has a direct impact on the world of fleet management, so we (who care for this industry) need to start thinking about what’s next. How do we add and retain value? Will our role change when everything around us seems to be changing?

Imagine a not so distant future where a self-driving car returns from its daily or nightly work right back to its recharging dock, where it will need to be reconditioned for its next shift. Think about filling that car battery with some ions, cleaning the vehicle, thorough inspection, small repairs and maintenance, software updates, etc. Who’s going to do that? And whoever does it, how will the car pay for it?

As we move into a different world, our business models will change too. We need to start thinking about becoming enablers of this new environment by acquiring and developing core competencies such as digital-first design, multi-brand procurement, financing and subscription expertise, as well as holistic service provider management. As the tectonic buying behavioral plates shift all around us to a “Cancel Anytime” frame of mind, how can a company create sustainable customer loyalty by setting them free and expecting them to stay at the same time? Here are three ways to accomplish that:

 

1. Always transform – become a digital services integrator.
In the world we live in, B2C or B2B companies have a clear shot at connecting supply and demand by performing the role of a digital services integrator. Identifying the minimum viable product (MVP) quickly to experiment new capabilities is possible because of the numerous technology accelerators. Building flexible platforms of engagement with internal systems, customers, analytics tools, IoT devices, and external parties, like partners through APIs, is critical to ensure a future digital business has the legs needed to sustain the information flow.

2. Be in constant design mode. And experiment.
Design thinking offers a framework for solving user problems. Design thinking helps build a deep understanding of the consumer of your services for whom you’re designing the products or services. From it, you develop empathy with the target user base for what they need, feel, and want. With this core discipline in house, you can tackle ill-defined problems reframing them with a human-centric mindset. Empathize, define, ideate, prototype and test are phases of this approach, but doing them in an Agile format gets you to launch solutions quickly without spending unnecessary cash before you get validated learnings from your user base.

3. Be ready to pivot or persevere. Always-on listening.
In the spirit of experimentation, subscriptions models must be built on cloud-based platforms that can allow a company opportunities to either persevere or pivot fast – this is the essence of being an entrepreneur in business. Every idea can eventually face a significant challenge: deciding when to pivot and when to persevere. Flexing a product or service has to be based on the ability to listen to customer feedback, from which a company can make financially wise decisions. When dealing with customers who can simply walk away at any moment, active listening skills will make or break your company. The right path should avoid kitting it out your product with tech, but instead, with the user experience, you want to deliver. Product performance should be a function of adoption, not how many features it’s got.

So, before you Netflix the hell out of your business, make sure you understand how people want to consume your services and then create the conduits for change through your core competencies and infrastructure. Make sure you have the flexibility you need to continue your path or change in an instant. We are experiencing change at an unprecedented exponential rate, opening windows of opportunity for business modeling pragmatism. Step back, and genuinely re-evaluate what the future of your business is. Because if you don’t, someone else will.

 

Felipe SmolkaAbout the author:
Felipe Smolka is the Executive VP of Transformation for LeasePlan USA, a global leader in #fleetmanagement services. He’s an Electrical Engineer holding an MBA degree from Emory Goizueta Business School and Digital Marketing at Wharton. Felipe is a #connectedvehicles expert with a strong passion for solving problems with great #ux and #dataanalytics.

 

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